Who Will Bet on WMS Industries?

If Viacom CEO Sumner Redstone doesn't buy WMS Industries (WMS ) soon, a leading Australian gambling outfit, Aristocrat Leisure, may just beat him to it. So argue several industry pros, who say the steep drop in WMS shares makes the producer of coin-operated video and gaming machines an attractive takeover target. Redstone, whose holding company National Amusements already owns 30% of WMS, continues to buy stock in the open market, now trading at 16.80 a share--down from its 52-week high of 32 in mid-June. Some analysts believe National Amusements will one day make a bid for WMS. The stock dropped after WMS was hit by a software problem in January, 2001, resulting in delayed state regulatory approvals of several of its new machines, lower house takes on its games, and order cancellations.

With WMS trying to resolve its problems, the company could become buyout bait, given the "strong balance sheet [no debt and $93 million in cash as of Dec. 31, 2001] and its powerful licenses and brands," says Jason Ader of Bear Stearns. WMS is worth 20, he believes, and should earn 78 cents a share for the year ending June 30, 2002, and $1.35 in 2003, down from 2001's $1.47. On Feb. 8, 2002, Ariel Capital Management reported to the Securities & Exchange Commission that it had acquired a 10.2% stake in WMS.

David Bain of Roth Capital Partners says Aristocrat wants to buy WMS: Aristocrat is seeking to "make a splash in the U.S. market and take on industry biggie International Game Technology," which has 70% of the gaming-machine market. WMS has 11%, and Aristocrat 5%. Last year, Aristocrat was rumored to have approached WMS for a possible buyout deal. WMS, National Amusements, and Aristocrat weren't available for comment.

By Gene G. Marcial

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